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What are the crucial elements of a contract?

As a Michigan or Illinois business owner, you and your company enter into numerous business contracts. Whether they represent purchase or sale agreements, employment agreements, partnership agreements or some other type of agreement, contracts form a major part of your business operations.

The Judicial Education Center explains that all contracts, no matter of what type, contain the following four elements

  1. Offer
  2. Consideration
  3. Acceptance
  4. Mutuality


The offer represents the first step in any contract negotiation. Here one party contacts the other party and offers to sell him or her something, do something for him or her, or refrain from doing something to him or her. In other words, the offering party offers something of value to the other party.


Consideration represents the action the offering party expects to get in return for his or her offer. The consideration could be a money payment, a financial arrangement, one or more specific actions, or anything else that represents value to the offering party. Bear in mind that the actual money value of the consideration is irrelevant. The only relevant factor is the value that the respective parties put on the consideration.


Naturally no contract becomes complete without its acceptance by both parties. What constitutes acceptance, however, can be different from contract to contract. In general, you and the other party accept a contract by one of the following methods:

  • Written acceptance – both of you sign the contract document
  • Verbal acceptance – you say something to each other such as “Let’s do it,” “It’s a deal,” or some other verbal communication that evidences mutual acceptance
  • Action acceptance – you and the other party shake hands with each other
  • Performance acceptance – both of you follow through with that which you agreed to do


It goes without saying that you and the other party must know what you are agreeing to. In other words, you must have a “meeting of the minds” so that both of you proceed to fulfill the contract’s provisions.

This is general educational information and not intended to provide legal advice.

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